Iran prisoner exchange and US ransom money
Jason Rezaian, one of the US citizens recently released from detention in Iran, waves to media after he was freedKai Pfaffenbach/Reuters

The US's recent payout of $1.7bn (£1.2bn) to Iran has prompted speculation that the money was ransom paid to the country's theocratic government to release American prisoners. Obama administration officials have strongly denied it was part of the recent prisoner exchange deal.

The US Treasury Department wired $400m in addition to another $1.3bn as interest to the Iranian regime. The financial settlement was officially to end the 35-year-old legal drama surrounding the US's failure to deliver weapons it promised to the Iranian regime in 1979.

But the recent payment has also coincided with the release of several American prisoners from Iran. A top Iranian commander has claimed the payment was ransom, following which many others have also raised questions over the transaction.

Brigadier General Mohammad Reza Naqdi, chief of Iran's influential Basij militia, said: "The annulment of sanctions against Iran's Bank Sepah and reclaiming of $1.7m of Iran's frozen assets after 36 years showed that the US doesn't understand anything but the language of force. This money was returned for the freedom of the US spy and it was not related to the [nuclear] negotiations," according to the semi-official Fars news agency.

Iran, a key US ally in the region before the 1979 Iranian Revolution, signed an arms deal with Washington just weeks before the downfall of the regime. The agreement was valued at $400m, but US companies could not deliver the weapons as promised allowing Iran's newly-installed leaders to demand compensation. Arbitration was set up in 1981 in The Hague to settle the financial dispute.

President Barack Obama himself insisted the latest payment has saved taxpayers millions of dollars as the US was quickly losing the case in The Hague. Speaking about the money transfer, Obama defended: "Iran will be returned its own funds, including appropriate interest, but much less than the amount Iran sought."

Tehran is thought to have repeatedly brought up this issue from the time moderate leader Hassan Rouhani became president in 2013. When asked about concerns over the payment being ransom for the release of the prisoners, US State Department spokesperson Mark Toner said: "There was no bribe, there was no ransom, there was nothing paid to secure the return of these Americans who were, by the way, not spies."